NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Transmission of Federal Reserve Tapering News to Emerging Financial Markets

Joshua Aizenman, Mahir Binici, Michael M. Hutchison

NBER Working Paper No. 19980
Issued in March 2014
NBER Program(s):   IFM

This paper evaluates the impact of tapering “news” announcements by Fed senior policy makers on financial markets in emerging economies. We apply a panel framework using daily data, and find that emerging market asset prices respond most to statements by Fed Chairman Bernanke, and much less to other Fed officials. We group emerging markets into those with “robust” fundamentals (current account surpluses, high international reserves and low external debt) and those with “fragile” fundamentals and, intriguingly, find that the exchange rates of the robust group (and lesser extend equity prices and CDS spreads) were more adversely affected to tapering news than the fragile group. The cumulative effects of tapering announcements after a month, however, appear to be quite similar for both robust and fragile emerging markets. We also show that more financially developed economies are more impacted by tapering news and a plausible interpretation is that more financially developed economies are more exposed, at least in the short-term, to external news announcements.

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This paper was revised on February 18, 2015

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Document Object Identifier (DOI): 10.3386/w19980

Published: Joshua Aizenman & Mahir Binici & Michael M. Hutchison, 2016. "The Transmission of Federal Reserve Tapering News to Emerging Financial Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 317-356, June. citation courtesy of

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